Hard vs. Soft Credit Inquiries: What's the Difference?

There's a common misconception that any credit check lowers your credit score and hurts your ability to get approved for loans and new lines of credit, but this is only sometimes true. There are actually two different types of credit checks -- hard and soft inquiries, and they depend on what the information is being used for.

Hard inquiries can hurt your score while soft inquiries don't make a difference at all. I discuss the differences between hard and soft credit pulls and the situations in which you might encounter each kind of inquiry.

What is a soft credit inquiry?

A soft inquiry (or soft pull) occurs when your credit report is not being used to make a lending decision, so it doesn't count against your credit score.

For example, if an employer were to pull the credit report of a job candidate, this would be a soft inquiry because they are not using this information to determine whether or not to lend the person money. They simply want some background on them and how they handle their finances.

Pre-approved credit card and loan offers also use soft credit inquiries. The company is trying to attract your interest by showing you what you may qualify for, but it will not actually make any lending decisions unless you fill out an application. When you check your own credit report, this is a soft inquiry as well. It doesn't matter how many soft inquiries you have because they don't show up on your credit report and they don't impact your credit score at all.

What is a hard credit inquiry?

Hard inquiries (or hard pulls) are the credit checks that lenders conduct when they're making a lending decision about you. When you apply for a mortgage, car loan, credit card, or even a home rental, the lender runs a hard credit check.

These inquiries will drop your credit score, but usually by five points or less. A single hard inquiry is not enough to seriously hurt your credit score, but if you have several hard inquiries on your report, these small point deductions will add up and could affect your ability to secure new credit in the future. The good news is, companies can only initiate a hard credit inquiry if you request it. A credit card company can run a soft credit check to send you a pre-qualified offer, but they can't run a hard credit check unless you actually apply for the card.

Not all hard inquiries are treated the same. It's normal to shop around when you're in the market for a loan or a line of credit, and credit scoring models account for this. Any credit inquiries that take place within a 30-day period are usually counted as a single inquiry on your credit report. But if you have more hard credit checks on your report after this period, they will show up as separate inquiries and your score will drop another few points. That's why it's best to complete all of your loan or credit card applications as close together as possible. Too many hard inquiries indicates a heavy reliance on credit, a red flag to lenders because it suggests you're living beyond your means and may be unable to pay them back.

Dispute inaccurate hard inquiries

Everyone should check their credit reports at least once per year to ensure that their information is accurate.

Your credit reports contain information on all of your credit accounts and they're used by lenders to assess your financial responsibility. They're also what your credit scores are based on, so you want to make sure there aren't any mistakes. You're entitled to one free report per bureau per year through AnnualCreditReport.com. Here, you'll be able to see records of all of your financial accounts and any hard inquiries on your report. Look for any inquiries that you don't recognize. This could be a sign that an identity thief applied for a fraudulent credit account in your name.

If you spot an erroneous pull, notify the credit bureau immediately. You should also reach out to the financial institution that ran the credit check to let them know that you did not request it. It may take some time, but the credit bureaus are legally required to remove the hard inquiry from your report if it is inaccurate. If the inquiry is accurate, you'll have to wait two years for it to fall off your record.

It's essential to understand the differences between hard and soft inquiries in order to keep your credit score in the positive range. Always plan carefully when you apply for a new credit line and keep a close eye on your credit reports to ensure they are accurate representations of your financial history.

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